7 Key Steps to Laying your Consignment Store's Operational Foundation
Jul 14, 2022
While consignment stores are simpler to start than other types of business, you still have no small number of tasks to do: acquire inventory, purchase supplies, build a website, set up displays, and plan the customer experience, just to name a few.
Even more important than these are the tasks involved in creating an operational, independent business entity with full administrative capabilities. They're the foundation of every activity you'll perform: paying employees, accepting items, taking payments, paying taxes, and more.
In this article, we've outlined the seven most important of these tasks that must be completed before you launch your business. This list isn't exhaustive, but these seven steps will allow you to establish the fundamental elements of your business as efficiently as possible. You'll need to do some of them in a specific order, so pay close attention as you read the following sections.
Determine your business structure
"Business structure" refers to the way your business is set up in terms of tax rates, ownership, and personal liability. Some common business structures include sole proprietorships, limited liability corporations (LLCs), partnerships, C corporations, S corps, and cooperatives.
For most small businesses, the best option is to form an LLC. They're easy to start and maintain, and you'll have no trouble finding an online service to help you create one. LLCs also keep your personal assets separate from the business. If a customer had an accident and sued you, or if you had to file for bankruptcy, an LLC would ensure that your personal bank accounts and assets would be safe, and that only your business accounts and assets would be affected.
Even if you're an online-only business, you should still organize as an LLC and start a separate business-only bank account (more on that to come). Treating your home or part-time business like a real store is the best way to get into the right mindset to succeed.
Set your store location
Location, location, location! Where you set up your business has a significant impact on your traffic.
Before you can register your business, pay taxes, and get licenses and permits, you need to set your store location. When choosing where to set your business, the most important consideration is your target audience's location. If you want to run a luxury, designer consignment store, choose a location near residential areas where your customers live. If you have a large amount of collectibles, artwork, and gifts, maybe choose a spot downtown with a high volume of tourists or visitors moving through it.
You should also consider your own home's location. If your ideal location is an hour and a half away from your home, then it probably isn't the ideal location. It might be tempting to move to be closer to that location, but starting a new business is enough of a lifestyle change that you don't want to add other stressors to the mix. It's best to simply choose a location that splits the difference between your home and your audience.
Register your business
Next, you can register your business. In some cases, registering isn't necessary for your business to become a legal entity. But you do need to register with your state to get a federal tax ID, which you'll learn about shortly.
Each state's process varies from the others, so you'll need to go to your state's website and research how to get started. A good place to look would be the Secretary of State's office, Business Bureau, or Business Agency. To find out what information you need in order to register, check out this article from the U.S. Small Business Administration.
Apply for an EIN
Once you've registered, you can get an Employer Identification Number (EIN), which serves as your federal tax ID. In addition to paying taxes, your tax ID allows you to hire employees, open business bank accounts, and get licenses and permits. You can apply for an EIN with the IRS assistance tool. Upon verification, you'll receive your nine-digit federal tax ID. Make sure to record it in a secure place---you don't want anyone else getting their hands on your ID!
In most states, you'll also need a state tax ID. You can look up your state at the end of this article to find out if you need to get one. If you do, check out your state's website to learn how to apply for it.
Apply for licenses and permits
With your business registered and your EIN acquired, you can apply for all necessary licenses and permits with your state, county, and city. Because regulations vary so widely from region to region, you'll need to do in-depth research into the requirements for resale stores set forth by your state, county, and city before opening your business.
Open a business bank account
A business bank account is essential: without it, you won't be able to sell items or pay consignors.
Once you have your federal EIN, you can open a business bank account, which you'll need to do before your business can start accepting or spending money. There are a few options available: a checking account, savings account, credit card account, and merchant services account. A merchant services account is the best option because it lets you accept credit and debit card transactions.
Business bank accounts have numerous benefits:
Limited personal liability: business accounts separate business funds from personal funds to make sure you personally aren't at risk if your business is sued.
More professional appearance: when customers pay your business instead of you personally, it makes your store appear more professional and official.
Emergency protection: most banks offer optional credit through their business accounts, which you can use in case of an emergency or to invest in expanding operations.
Purchasing and credit: With a credit card, you'll be able to make the purchases you need to get started, as well as establish a credit history.
Take a look at the local credit unions in your area. Credit unions are more responsive and often have fewer fees than large national banks. The NCUA has a credit union locator on their website that you can use to discover your options.
Get business insurance
While an LLC protects your personal property, you also want to protect your business assets with a strong insurance policy. In many states, you can't even open for business until you have some level of insurance, so check your state's website to learn about any specific requirements. The federal government also requires every business with employees to offer workers' compensation, unemployment, and disability insurance.
If you rent a space for your business, your commercial lease may also stipulate a minimum amount of insurance you have to carry. You can bring your lease with you to your insurance provider to make sure they get you adequate coverage. This type of insurance is fairly commoditized and inexpensive, so your best bet is to ask your existing insurance provider about their business offerings.